Pseudomonas Exotoxin (PE) incubated with cells was proteolytically cleaved to produce an N-terminal 28 kDa and a C-terminal 37 kDa fragment, which is composed of a portion of domain II and all of domain III (the ADP-ribosylating domain). Cleavage required the presence of Arg276, Pro278, and Arg279. Cleavage was evident at 10 minutes after toxin addition and endosome preparations contained the processed fragments. Cytosol from toxin treated cells was greatly enriched in the 37 kDa fragment which is essential for toxicity since mutant PE molecules that do not produce this fragment or deliver it to the cytosol, fail to kill cells. Cell membranes were shown to have a calcium-dependent protease that cleaved PE with a pH optimum of 5.5. This activity was solubilized with 1% NP-40. PE40 was cleaved between domains II and III by two retroviral proteases. HIV protease hydrolyzed the Leu-Leu bond at position 389-390 while the corresponding AMV protease cleaved at the Asp-Val bond at position 406-407.